Another 25 basis points cut in interest rates by the Fed will result in cheaper borrowing costs.

On Wednesday, the Federal Reserve reduced its benchmark interest rate, making borrowing even cheaper.

The federal funds rate was reduced by 25 basis points, bringing the target range to 4.25% to 4.50%, which is a 1% decrease from September. This rate affects borrowing costs for credit cards, loans, auto financing, and mortgages.

In an effort to spur economic growth, the central bank has gradually decreased interest rates due to indications of a sluggish job market and declining inflation.

Inflation peaked at 9.1% in June 2022, and since then, it has fallen to 2.7%, bringing it closer to the Fed's 2% target. However, progress on inflation has stalled in recent months, and Fed Chair Jerome Powell expects it to continue coming down toward the 2% objective, albeit on a sometimes bumpy path.

The Fed revised its projections, predicting that the benchmark rate will be between 3.75% and 4% by the end of 2025.

Robert Johnson, a professor of finance at Creighton University's Heider College of Business, predicts that if the proposed Trump tax cuts and increased tariffs lead to inflation, the Fed will adjust its approach and exercise greater caution.

How the rate cut could affect your wallet

The recent rate cut could affect your monthly borrowing costs, with a 25-bps reduction on Wednesday and a cumulative 100-bps reduction since September, as estimated by Bankrate.

Credit cards

For borrowers with a $5,000 balance:

• Savings from Wednesday's 25-bp cut: $1.04 per month
• Total savings from 100-bp rate cuts since September 2024: $4.17 per month

Personal loans

For a new $10,000, three-year personal loan with a lower rate:

• Savings from Wednesday's 25-bp cut: $1.20 per month
• Total savings from 100-bp rate cuts since September 2024: $4.80 per month

Auto financing

On a new $35,000, five-year auto loan:

• Savings from Wednesday's 25-bp cut: $4.14 per month
• Total savings from 100-bp rate cuts since September 2024: $16.63 per month

Home Equity Lines of Credit

On a $50,000 HELOC:

• Savings from Wednesday's 25-bp cut: $10.42 per month
• Total savings from 100-bp rate cuts since September 2024: $41.67 per month

Adjustable-rate mortgages

If you have a resetting mortgage rate, you may end up paying more in interest than you did previously.

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